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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
Arbitration – Procedure – Arbitration clause contained in an agreement – Invoking arbitration clause at the first court hearing
The Petitioner reserved a residential unit in one of the Respondent’s projects at a price of AED 1,515,555 payable in instalments, out of which the Petitioner paid three instalments. The Respondent breached the reservation agreement by failing to achieve completion and did not refund the amounts paid despite repeated requests from the Petitioner. The Petitioner brought Commercial Action No. 1875-2010 against the Respondent seeking judgment against it with interest on arrears from the date of the action until paid. The reservation agreement contained an arbitration clause but the parties proceeded with the case in the Courts. The Court of First Instance appointed an expert and after receiving his report declared the reservation agreement terminated and ordered the Respondent to pay, to the Petitioner, a sum of AED 227,334 while dismissing all other claims. The Respondent appealed in Appeal No. 1135-2011 and on 20.09.11, the Court of Appeal quashed the primary ruling and dismissed the action because of an arbitration clause. The Petitioner appealed, contending that the Court of Appeal quashed the primary ruling and dismissed the action due to an arbitration clause even though the Respondent had, through its lawyer, attended the first hearing without invoking the arbitration clause or raising a plea of inadmissibility against the action in accordance with Article 203, Section 5 of the Civil Procedure Law. Rather, the Respondent’s lawyer sought leave to reply and file a power of attorney. Thus, the arbitration clause became void and could not be invoked at the next hearing.
The Court of Appeal decision was overturned.
According to Articles 50, 55 of the UAE Civil Procedure Law a party may appoint a lawyer to represent it in court and the purpose of requiring a lawyer to produce his power of attorney is to give evidence of his authority to represent his client. If the court permits the lawyer to appear on behalf of his client subject to producing documentary evidence of his authority to act at a subsequent hearing, his representation of his client shall be valid and effective and the hearing (at which he was granted such permission) shall be regarded as the first hearing for the party who was represented by his lawyer.
Article 203, Section 5 of the UAE Civil Procedure Law provides that if the parties have agreed to settle a particular dispute by arbitration then the dispute may not be brought before the courts. However, if either party decides to proceed in court despite the presence of the arbitration clause and the other party does not object at the first hearing, the action will be heard, and the arbitration clause shall be deemed void. The party invoking the arbitration clause must take positive action to object at the first hearing to its opponent’s proceeding to court with its claim despite the [Page56:] agreement to arbitrate. If such party does not object at the first hearing, then the action will be heard. The expression “the action will be heard” means that hearing the matter in court becomes proper and necessary and the arbitration clause becomes inoperative. However, if an objection is raised at that hearing, the court must rule that the action is barred because of the arbitration clause pursuant to the parties’ agreement to submit their disputes to arbitration. The first hearing is the hearing at which the defendant attends or is represented for the first time before the court in an action that is being fought out with pleas and arguments. Any other intention would have been expressly stated in the Law along the lines of Article 164 which allows a respondent to file an ancillary appeal: “a respondent has up to the date of the first hearing to file an appeal either through normal filing procedures or through a brief setting out his grounds for appeal.”
The Respondent’s lawyer attended the hearing of 10 February 2011 and sought leave to reply and file a power of attorney and was allowed to proceed with the representation. Thus, his representation of the Respondent at that hearing was valid and effective and it was the first hearing for the Respondent. At that hearing, the Respondent’s lawyer did not invoke the arbitration clause but sought leave to reply and file a power of attorney. In so doing, he waived his right to rely on the arbitration clause and could not then rely upon it at a subsequent hearing.
The Court of Appeal took a different position, holding that the first hearing at court is not necessarily the first hearing fixed for consideration of the matter. That hearing was adjourned for the other side, who had no knowledge of the matter, to study the file and prepare a response. Accordingly, the next hearing, which the other side attended to file its defence, was the first hearing at court, not to mention that the Respondent’s lawyer attended the hearing of 10 February 2011 without bringing a power of attorney. Therefore, it was argued, he could not have pleaded that the action should be dismissed because of an arbitration clause. On the facts the Court of Appeal found that the First Respondent’s lawyer filed a brief containing that plea at the next hearing (24 February 2011) thus making that hearing the first hearing at court. However, for the reasons given above the Court of Appeal has contradicted and misinterpreted the law and its decision will be overturned with remand.